Tit for Tat is not a winning foreign policy strategy

The threat this week of a real war with Iran should be a wake up call for all Americans.  A strategy of tit for tat in international affairs is a surefire way to wind up with a shooting war that no one appears to want.

President Donald Trump was right to pull the plug on a proposed military strike in response to Iran’s taking down a US drone.  The Iranians claim the drone strayed into their airspace, while the US contends it was in international waters.  No one denies it was keeping an eye on the possible activities of Iranian military forces.

The incident reflects the dangers of a reactive approach to foreign policy.  Actions are produced in an almost ad hoc manner in response to the latest unfriendly act of our perceived enemy. Usually, such actions exacerbate the conflict. Rarely do they allow for a diplomatic resolution.

Trump’s approach to the conduct of foreign relations is not unique in American history.  It has been pursued all too often by recent US administrations, Democrat as well as Republican. 

A sound foreign policy strategy needs to be based on a clear understanding of the relationship between the US and the country whose actions we are seeking to influence. The history of that relationship impacts heavily options going forward.  Also, the US should be sensitive to the impact our actions can have on third parties as well as on other priorities in our national interest.

Foreign policy decisions do not take place in a vacuum.

In the case of Iran, there has been a long and contentious relationship between Iran and the West. The British began exploiting Iran oil riches in the early 20^th century. Despite the glaring inequity of the arrangements, Iran remained firmly in the Allies camp during World War II. The Big Three, Stalin, Churchill and FDR, held a major conference in Tehran in 1943.

Although Iranian nationalism became more assertive in the aftermath of the war, fear of potential Soviet influence led the British and the US to continue support for the Shah as Iran’s leader.  In 1953, the two Western powers engineered removal of the popularly elected Iranian Prime Minister Mohammad Mosadegh.  He had nationalized Iran’s oil industry

The coup restored the Shah’s control but left him dependent on Western support and distrusted broadly among Iranians of all political stripes. The cauldron finally boiled over in 1979 when Iranian revolutionary forces sent the Shah into exile and the clerics took over.  When President Jimmy Carter allowed the Shah to receive cancer treatment in New York, Iranian students took over the US embassy in Tehran and held the American staff there hostage for 444 days.

US-Iranian relations have been virulent ever since. The military skirmishes between the two countries have been few and with minimal casualties, but gestures towards some sort of reconciliation have always run into some obstacle.

The latest breakup, Trump’s withdrawal from the Iran nuclear deal (JCPOA), is exasperating. Negotiated by the Obama administration with the support of five other major countries, Britain, France, Germany, Russia and China, the agreement was endorsed by the UN Security Council as well. Granted, the deal includes nothing to restrain Iran’s meddling in the internal affairs of some of its neighbors, nor to end Iran’s alleged support of terrorist groups. Restraining Iran’s nuclear weapons development, however, is an important step in restoring some level of confidence and trust among the signatories. Hopefully, that might allow for the resolution of other differences.

Trump’s decision to impose “maximum pressure” on Iran through more aggressive sanctions is not likely to succeed.  Iran is a nation of 80 million people whose cultural and political heritage reaches back to the 5^th century B.C. Its collective memory of Western exploitation is firmly intact.

Iran’s oil resources are significant. US efforts to block third parties from seeking access to those resources will try our relations with several key countries including China, India, South Korea and Japan. Iran is also strategically located, sharing borders with Afghanistan, Pakistan, Turkey and Iraq, all countries of importance to the US. Iran has already proven it can withstand a serious military challenge, successfully surviving an eight-year war with US-back Iraq in the 1980s.

A number of undesirable outcomes are possible.

Iran will find support in avoiding US sanctions among third parties who see an advantage in resisting US demands. This could give the Iranians cover for continuing to develop the necessary component for nuclear weapons. Iran may also step up its support of militant proxies in the Middle East. 

North Korea will become even more reluctant to give up its nuclear weapons since the US cannot be trusted to honor its commitments. This lack of trustworthiness is also likely to influence China’s willingness to negotiate economic agreements with the US or to support the US in trying to rein in Kim Jong un. Finally, our long term alliances with Europe may also suffer as the result of our perfidy.

 The US cannot afford to risk becoming isolated on the world stage. Both our economic and our military strength require allies. The US needs to rejoin JCPOA and to implement it as expected. Going it alone and ignoring history will not produce a winning foreign policy strategy.

Do Top Earners Care?

A couple of weeks ago a New York Times pundit claimed the US economy was so strong Democrats were going to find it tough to defeat Donald Trump in 2020. In the same edition the newspaper printed a list of the top 200 US corporate executives ranked by their 2018 compensation. No apparent connection was acknowledged.

The list, however, makes two things clear: 1) Corporate America’s chief executive officers are profiting robustly from policies already in place before Trump but enhanced handsomely by his administration, and 2) Corporate America cannot be counted on to reduce the income inequality undermining the livelihood of most Americans on its own.

According to the Times list, the 200 highest paid CEOs enjoyed a 6.3 percent pay increase last year, while average workers in the US received only 3.2 percent. Median salary for  CEOs in 2018 was $18,630,000.  Median family income in the US in 2018 was slightly less than $64,000.

Some key corporate CEOs were absent from the list: Warren Buffet (Berkshire Hathaway), Larry Page (Alphabet) and Jeff Bezos (Amazon). Buffet’s modest living style and his commitment to giving away 99 percent of his fortune before his death are well-known. Page receives a salary of $1 per year. Bezos has received the same $81,840 annual salary for ten years.

According to Bloomberg, Page who currently owns 40 million shares of Alphabet has sold shares valued at $9 billion since the company went public in 2004. It’s hard to believe Bezos who controls 16 percent of Amazon has created an aerospace company (Blue Origin) and bought the Washington Post on his humble salary.

Mark Zuckerberg is on the list, but at compensation of only a little over $22,000,000.  The Facebook CEO owns approximately 17 percent of the social media platform, but he holds  over 50 percent of voting rights in the company. According to Investopedia, Zuckerberg sold 240,000 shares of Facebook common stock in 2018 for over $52 million.

Top CEO on the list is Tesla’s Elon Musk, who received nearly $2.3 billion in compensation last year. That is approximately the same amount the company announced in May it needed to raise from capital markets to keep functioning effectively. Tesla has also benefited from a generous federal tax credit, $7,500 for the first 200,000 purchasers.

Concern about the new requirement to publish CEO pay ratios is not evident from data on the list. Calculated by dividing the CEO’s compensation by the pay of the median employee of the company, the CEO pay ratio reveals the income gap between those in charge and those likely doing most of the work.

Ignoring Tesla’s out-of-sight CEO pay ratio, the next two highest belong to Gap’s Arthur Peck, 3,566:1 based on his $20,793,939 compensation, and to Mattel’s Yvon Kreiz, 3,408:1 based on his pay of $16,955,660. Lowest ratio was at Celgene where Mark Alles’ $16,223,923 compensation translated into a CEO pay ratio of 62:1.

Median CEO pay ratio for the entire list was 277:1.

An additional caveat to note: the Times list did not include some of the business world’s most highly compensated individuals, like the CEOs of private equity firms and hedge funds. One of the latter, Kenneth C. Griffin, head of Citadel Investment Firm, paid nearly $240,000,000 for a New York City penthouse in January. Griffin’s firm made $1.4 billion in 2017, but only managed $870,000,000 in 2018.

Nearly two thirds of all hedge funds lost money last year, one of the worst years for hedge fund performance in a decade. Still, the top 25 hedge fund CEOs took home a collective $11.15 billion. One of the managers who fell off the list this year was Appaloosa Management’s David Tepper, who earned $1.5 billion in 2017.  Guess he spent too much time negotiating tax concessions from South Carolina. 

There are occasional glimmers of hope.

Ray Dalio, Bridgewater Associates, had the best performance among hedge funds last year with $2 billion. In a two-part series published on Linkedin in April 2019, the 69-year old investor warned that American capitalism is “producing self-reinforcing spirals up for the haves and down for the have-not. This is creating widening income/wealth/opportunity gaps that pose existential threats to the United States because these gaps are bringing about damaging domestic and international conflicts and weakening America’s condition.”

Another empathetic voice in the corporate world belongs to Nick Hanauer, Seattle venture capitalist. His TED Talk debunking supply side economics caused a stir in 2014.  In the recent issue of The Atlantic, Hanauer continues his plea for our prosperity to be shared:

“…the most direct way to address rising economic inequality is to simply pay ordinary workers more, by increasing the minimum wage and the salary threshold for overtime exemption; by restoring bargaining power for labor; and by installing higher taxes—much higher taxes—on rich people like me and on our estates.”

Dalio may see the reality more clearly:

“My big worry is that the sides will be intransigent in their positions so that capitalism will either a) be abandoned or b) not be reformed because those on the right will fight for keeping it as it is and those on the left will fight against it.”

Experience Counts

Charles Percy had a successful business career as head of Bell and Howell, a camera company, before being elected US Senator from Illinois in 1966 as a Republican. Almost immediately he was broadly touted as a potential GOP presidential nominee. Percy declined to be a candidate in 1968, however, saying he did not have enough experience. 

I am sure that seems a quaint notion to aspiring seekers of the oval office in the 21st century.

To most objective observers, Donald Trump in 2016 did not have the normal qualifications one might expect of a presidential candidate.  His name was reasonably well known to the American public. His “Apprentice” television show had run for a long time, and Trump was often fodder for gossip columns. His celebrity status appeared to be enhanced by the frequent bankruptcies suffered by his real estate and gambling ventures.

But Trump had never served in government at any level; neither elected office, nor appointed position. He had never run for office.  

Trump had no military record, even though he was draft age at the height of the Vietnam War. He was declared 4-F by his local draft board on the basis of a bone spur in his foot.

Trump’s marital life also did not conform to normal expectations. Ronald Reagan had been divorced, but when he was elected, Reagan and his second wife Nancy had been married for 28 years.  Trump’s misogyny was visible and unapologetic.

As a presidential candidate Trump identified several significant issues that American voters felt the country’s political elites had either ignored or had poorly addressed.  Immigration, job security, trade, and the excessive influence of special interests were key elements in his campaign agenda.

In neither the primaries nor the general election did Trump offer much in the way of strategies or programs to deal with any of the issues he cited. He dominated campaign attention by belittling his opponents and predecessors and by aggressively asserting that he, emphasis on he, would solve these matters for the benefit of Americans.

Once in office, Trump’s bombast has not moderated. While he has issued over 100 executive orders, most do not lay out detailed proposals. Generally, they direct some office or agency to address a broad set of concerns or they overturn orders left in place by previous presidents. Ironically, Trump does not appear to view as partners the bureaucracies that are to implement these policies.  

Trump’s picks for senior staff positions in the administration have been undistinguished overall. Frequently, there does not appear to have been any previous interaction between Trump and the appointee. As a candidate he talked of “draining the swamp” in regard to the influence of special interests, but many of Trump’s appointees appear to have significant conflicts of interest. 
  
Commerce Secretary Wilbur Ross and Transportation chief Elaine Chao both have disregarded commitments to divest stock in companies with interests their departments are in a position to further. Scott Pruitt who has already left the Environmental Protection Agency received substantial campaign contributions from the fossil fuel industries when serving as Oklahoma’s attorney general. 

Pruitt has been replaced by a former lobbyist for the coal industry.

Trump’s lack of meaningful experience in foreign affairs has been obvious. At first, he appeared to be enamored with military brass, selecting retired generals for several major slots. They are all gone, and he is on his third national security advisor, his third head of Homeland Security and his third chief of staff in the White House.

Rex Tillerson was his choice for Secretary of State, but Trump and the former head of Exxon were never in harmony. Many senior positions in the State Department remain empty even today, including a number of key ambassadorial slots.

 An ambassador to Mexico was announced in March 2019 and an envoy to El Salvador in January 2019. 

Trump’s only major legislative accomplishment has been the 2017 Tax Cuts and Jobs Act. Estimates of its benefits have been mixed. Corporations have been the big winners, but the anticipated impact on job and wage growth has been muted.  

He has been successful in cementing a conservative majority on the US Supreme Court, thanks in large measure to US Senator Mitch McConnell, the GOP majority leader. The US Senate under McConnell’s leadership has become a much more partisan body.

 The issues that Trump highlighted in the 2016 election campaign are still festering. Some are worse. Any change in his approach to his responsibilities seems remote.

There are lessons here. The US president must be aware of the concerns and needs of the American public in the broadest sense.  He should be the chief advocate for our citizenry.

But the president also needs to be sensitive to our constitutional structure and to the reality of what and who is required to implement policy. He cannot be successful as a one-man band.  The understanding and temperament that come with governmental and political experience is essential to achieving progress.     

As voters we need to improve our personal approach to evaluating presidential candidates and to insist the political parties exercise greater care in the nomination process. Granted in a democratic society you do not wish to impose burdensome restrictions on potential candidates, but realistically, in the modern world a flawed president quickly becomes an albatross that threatens the national interest.